Financial Update (April-June 2000)

International ACH Debuts at the Federal Reserve

t will soon be easier for payments to cross the border electronically between the United States and Canada thanks to Federal Reserve plans to provide an international automated clearinghouse (ACH) service. The service will offer all financial institutions an easily accessible, efficient and cost-effective channel for initiating and collecting payments electronically between the two countries.

Service available in 2001

In early 2001, the international ACH service will be available to all financial institutions with the implementation of settlement-day finality for ACH credit transactions. The service will follow the formats and rules established by the National Automated Clearinghouse Association. In the interim, a test program for the service has been expanded from the current base of 10 eligible institutions to 20 financial institutions.

With the new service, a credit or debit transaction originated by a financial institution in U.S. dollars can be paid to the recipient in Canadian dollars. The processing deadlines for the international electronic payments are the same as for domestic transactions, and the exchange rate for cross-border transactions is calculated daily. The ability to transfer payments originated in U.S. dollars to U.S. dollardenominated accounts in Canadian banks will be added later this year, as dictated by Canadian Payment Association regulations.

Gateway operations clear and settle payments

The Federal Reserve Bank of Minneapolis and Toronto-Dominion Bank will be the gateway operators for ACH payments between the United States and Canada. Gateway operators can clear and settle payments within their own system and serve as the point of entry to and exit from their nations payments system.

The international ACH service supports the Federal Reserve Systems strategic direction to promote electronic payment services as an alternative to paper-based products such as checks. The service is designed to reduce the clearing time and cost associated with international payments.